Bangladesh bucks global reverse to record FDI growth

Bangladesh witnessed a “modest” increase in the foreign direct investment or FDI last year despite a 2 percent global decrease and 14 percent decline in developing countries, the World Investment Report 2017 shows.

The report released in Dhaka on Thursday said that barring India, Bangladesh was the “best performer” in South Asia as the FDI amount was much higher than Sri Lanka and Pakistan, countries that are in a better position than Bangladesh in the World Bank’s ease of doing business ranking.

The Bangladesh Investment Development Authority or BIDA that aimed at improving Bangladesh’s ease of doing business ranking to take it to below 100 from the current level of 176 in next five years launched the UNCTAD report.

Chief Coordinator for Sustainable Development Goals (SDG) Affairs in the Prime Minister's Office Abul Kalam Azad was present as chief guest while President of the Bangladesh Women Chamber of Commerce and Industry (BWCCI) Selima Ahmad spoke as a business leader.

A modest growth, but good news

Mansur said FDI remains the “largest and most stable” source of finance for developing economies compared with portfolio investments, remittances and official development assistance from multilateral and bilateral sources.

He said last year Bangladesh recorded $2.3 billion FDI which was $100 million more than the previous year. He termed it a “modest” growth analyzing the global trend.

After a strong rise in 2015, FDI flows declined by 2 percent to $1.75 trillion in 2016 worldwide. Developing countries were the hard hit with a 14 percent decline to $646 billion.

He said Bangladesh’s growth was 4.4 percent from the previous year. In terms of total world FDI flows, Bangladesh accounted for only 0.1 percent of global FDI flows.

Mansur said in South Asia, India fetched the highest of $44 billion FDI in both 2015 and 2016.

Though only $1.2 billion, Pakistan witnessed 56 percent growth in its FDI mainly due to China’s investment in infrastructure in support of the One Belt One Road (OBOR) initiative. Sri Lanka’s FDI was only $636 million.

Azad, however, said Bangladesh did much better, considering the overall decline in developing countries.

“Then (considering developing countries' decline) we must have drawn $1800 million. In that case, we recorded over $500 million more FDI last year,” he said.

The BIDA executive chairman termed the report “good news” for Bangladesh as it showed that FDI was increasing continuously in Bangladesh since 2010. In 2007, it was only $768 million, he said.

He said Indian economy is totally different and it has started getting the benefits of the huge reforms it had undertaken both in union and state level.

“That is paying off,” he said, “That is going to happen in Bangladesh in the next five years as we have undertaken huge reforms”.

Islam said Sri Lanka’s ease of doing business ranking is 109 and Pakistan’s is 148, so both are ahead of Bangladesh. “But they are below us when it comes to FDI”.

Outflows from developing countries

Typically, it is believed that FDI comes from developed countries, but the report says otherwise.

Outward investment from developed economies as a group declined by 11 percent to $1 trillion in 2016 and outflows from developing economies were at $383 billion, largely due to India and China.

The FDI outflows from developing Asia rose by 7 percent to $363 billion, primarily due to Chinese outward investments.

The BIDA chief said India received $15 billion investment from Singapore. “Fortunately for us, Singapore takes much interest in Bangladesh. They have started activities focusing Bangladesh”.

“We are not looking at the developed countries only for investments. We are also focusing on developing countries from where investors can come,” he said.

Sectors that draw FDI

According to the report, the most important source of FDI in Bangladesh continues to be reinvested earnings. This shows that foreign companies already operating in Bangladesh feel comfortable in reinvesting their profits in expansion of their operations.

“This is positive for attracting new investors into the economy,” PRI Director Mansur said.

Equity capital is the second most important component of FDI, which despite some volatility, has been increasing in recent years and has sharply increased by more than 30 percent to $911 million last year.

Telecommunication received the highest amount of investment from foreign investors, $573 million, followed by power and gas at $434 million, and textiles at $364 million.

There was a large injection of capital by Singapore Telecom, Singtel, to enhance the capital base of Bharati Airtel in Bangladesh.

The BIDA executive chairman said investment in those sectors was necessary “to augment development”.

“Telecom is at the heart of connectivity. Power sector drives everything. Our GDP doubled because the government met the power demand in the fastest possible way.”

He, however, said there is a competition among all countries to bring in FDI.

“Philippines and Vietnam are trying to increase FDI. Even we are competing with big countries like China. Both the US and China are also big investment destinations.”

“We have to position ourselves in a way that we can compete not only with smaller countries like Philippines and Vietnam, but also big countries such as China and the US.”

Aminul Islam, however, said they are getting tremendous response from the global investors.

“Every day we meet on an average three, four or five delegations coming from different countries. In one meeting, we have signed $2 billion agreement in construction sector,” he said, referring to the recent agreement with Chinese group.

This year, he is expecting at least $5 billion investment.

Prospective sectors that expect investment in coming years are IT and professional services in developed countries and agro-business in developing countries, according to the report.

It identified ‘digital economy’ as the key driver of growth and development across the globe.

“Creating and maintaining a conducive regulatory framework for digital firms, as well as active support measures are crucial for promoting investment in local digital content and services,”the report said.